Mounting overcapacity in the North American polypropylene market and concerns over propylene supply are leading Huntsman Corp. to close its 400 million-pound-per-year PP plant in Woodbury, N.J., effective April 30.
President and Chief Operating Officer Peter Huntsman said market overcapacity has driven prices and margins ``to unprecedented and unsustainable levels.''
``Irresponsible and untimely expansions unfortunately have become polypropylene industry hallmarks, and there apparently is no end in sight,'' Huntsman said in a news release.
Huntsman added that PP makers are scheduled to add 5.5 billion pounds of new capacity in the next three years, an amount that could meet nearly six years of strong demand growth.
Tosco Corp.'s recent decision to discontinue its long-term propylene supply agreement with Huntsman also played a role in the decision. Tosco previously had supplied the Woodbury plant from its refinery in Linden, N.J., but now plans to use its own propylene in a recently announced PP joint venture with Union Carbide Corp.
Huntsman took several steps to keep the Woodbury site viable, according to Peter Huntsman. Those steps included a $30 million expansion and modernization in 1997 and a 20 percent reduction in staff through early retirement and attrition.
``Any one of these initiatives would have sustained the facility in a normal market, but in today's climate, all of them together have not been enough,'' Peter Huntsman said.
All of the plant's output was homopolymer-grade material used in such applications as outdoor furniture, bottle caps and closures, food-service ware and packaging films.
The Woodbury plant, which employs about 125, was built by Shell Chemical Co. in 1962 and is the oldest operating PP plant in North America. Its customers now will receive material from Huntsman sites in Longview and Odessa, Texas; and Marysville, Mich.
Propylene supply may have been a larger issue than industry overcapacity in Huntsman's decision, according to Bob Unterreiner, an industry analyst in Palatine, Ill.
``A lot of polypropylene manufacturers have their own propylene capacity, so they're not in the situation Huntsman is,'' Unterreiner said. ``This is a special case that may not necessarily lead other companies to do the same thing.''
Bill Vernon, a consultant with Chemical Market Resources in Houston, agreed, saying the Huntsman closing is ``an isolated incident.''
``They had an ancient plant there with a monstrous Unipol plant [from Tosco and Union Carbide] opening up nearby,'' Vernon said. ``And it wouldn't be worth it for them to ship propylene from the Gulf Coast.''
After the closing, Huntsman PP capacity at the three sites will total 1.2 million pounds, ranking the company sixth among North American PP makers with 6.6 percent of anticipated 1999 capacity.